The Fixer: Christmas debt solution

The Fixer logoHave you been left out of pocket due to poor service or sharp practice? Do you have a money problem that won't go away?

It can seem impossible to get a fair result when you are battling a financial issue alone. But never fear! The AOL Money Fixer is here to help.

Dear Fixer,
Christmas turned out to be more expensive than I expected last year. Not only did I have all the usual presents and food to buy, my car needed some unexpected works that cost me about £500 on top.

As a result, my credit card debts - which were already about £2,000 - have grown to £3,000.

I am currently paying 17.9% on that amount, so as one of my New Year resolutions, I have decided to switch it to a card charging 0% so that I can get rid of the debt more quickly.

I have looked online and found lots of 0% balance transfer credit cards that I could apply for, but I am a bit confused about balance transfer fees.

Can you explain how they work and whether I should worry about them or not? Thanks for your help.

S Peters, London

Dear Mr Peters,

It is a very good idea to switch your credit card debts to a 0% card to enable you to pay them off both more quickly and at much less cost to you.

There is no point in paying interest when you don't have to. And switching £3,000 from an average credit card charging an APR of 17.32% to one offering borrowing at 0% would save you about £400 in interest over the next 12 months alone.

All the best balance transfer credit cards do come with balance transfer fees that will be added to your balance to be paid off along with your debts, though.

As they all charge the same rate - 0% - what you need to consider is the length of time the interest-free offer lasts for and the balance transfer fee.

After all, the difference between paying a 3% balance transfer fee and a 1.5% balance transfer fee on a debt of £3,000 is £45. But the longest deals generally come with the largest balance transfer fees.

The market-leading Barclaycard Platinum with Extended Balance Transfer, for example, charges a fee of 3.2% to access its offer of 24 months at 0%.

And the high interest rates charged once the interest-free period ends will usually end up adding much more to the overall cost than the initial fee.

You therefore need to work out how long it will take you to clear your £3,000 debt before picking a card.

The good news, however, is that you can currently get the best of both worlds thanks to Lloyds TSB's offer of a 50% refund on balance transfer fees for customers taking out its Platinum credit card online (before February 23).

And that means paying just 1.5%, or £45, for 21 months of interest-free borrowing. What a great deal!

The Fixer

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